More are willing to spend $1 million on a homeNumber paying seven figures is up 23% in the Houston area from 2007

By Nancy Sarnoff |
April 13, 2008

Ronald Wardell and his wife, Paige, moved into their Spring Branch-area home with son Baker and Paige's daughter, Gabby Gollihar, last spring. The 5-year-old, 5,370-square-foot house cost about $1.25 million.

When Ronald and Paige Wardell began shopping for a house inside the Loop, they figured they could find everything they wanted for $750,000 — tops.

Their requirements: at least 4,000 square feet, a yard for their two young children, and that it be close to Ronald Wardell's Galleria-area law office.

"We quickly learned that for the type of house we wanted and the size of house we wanted, that simply wasn't going to be found," he said.

So they upped their budget and expanded their search.

Last spring, the Wardells moved into a 5-year-old, 5,370-square-foot house, sitting on just under an acre, north of Interstate 10 in the Spring Branch area. The price: $1.25 million.

The Wardells are part of the growing number of buyers who spent $1 million or far more for a house in the Houston area last year.

There were almost 800 buyers who paid at least $1 million for houses in 2007 through transactions handled by agents in places like Stablewood, Memorial and River Oaks. That was up 23 percent from the year before and 64 percent over the sales for 2005, according to the Houston Association of Realtors.

Predictably, those willing to spend seven figures on houses are often doctors, lawyers or those employed by the energy business, the dominant industry in Houston's economy and one that's been fueling job growth and sales of expensive abodes.

"In the '70s and early '80s, a lot of wealth was accumulated in the energy business, but it's nothing like what it is today," said John Daugherty of John Daugherty, Realtors.

The global energy market, he said, is bringing people to Houston from Europe, Asia, South America, Canada and elsewhere.

International buyers and others from outside the Houston area spending more than $1 million typically amount to between 25 percent and 30 percent of Daugherty's annual business.

Last year that figure reached 40 percent.

McMansion territory

Home values are spiking in upscale neighborhoods where builders are scrapping outdated properties to put up amenity-filled McMansions, according to a study on 2007 housing prices conducted by Crawford Realty Advisors in conjunction with the University of Houston's Institute for Regional Forecasting.

Almost 10 percent of the sales in River Oaks were new homes. And in Tanglewood, 21 percent of last year's sales were of new homes.

Luxury residential construction is turning more neighborhoods into million-dollar markets.

Charlie Neath, an agent with John Daugherty, Realtors who helped the Wardells find their home, recently sold a new $1.2 million Victorian in the Houston Heights, where a third of the sales were new and values per square foot were up almost 7 percent to $177.18, according to the study.

Less time on the market

More homes in Bellaire, Afton Oaks and even suburban areas such as The Woodlands and Kingwood are selling for seven figures.

Agents report quick sales on properties "priced right."

The average time it took to sell a $1 million or pricier home in February was 111 days, according to the latest data from the realty association. That's down from 164 days last year.

The inventory of such homes, however, is growing.

It would take slightly more than a year to sell all the million-dollar homes that were on the market at the end of February, the association estimates. That's up from 11.6 months a year earlier.

"Once you get to a million, you limit your pool," said Suzann Richardson, an agent with Martha Turner Properties, whose $1.25 million listing in Braeswood has been on the market for almost three months.

The 4,079-square-foot English Tudor is on a lot more than twice the size of the house, which has been extensively remodeled.

"I see this as an area that's going to blossom," Richardson said.

Not what it used to be

In neighborhoods known for their extravagance, however, a million-dollar residence isn't what it used to be.

In West University, $1 million might buy a four- or five-bedroom house built in the 1980s, though some newer homes have sold in that range.

In River Oaks, a $1 million property is likely to be a much older home, unless it's a unit in a high-rise.

At the beginning of the year, a local energy trader in his mid-30s spent "between $1.5 million and $2 million" in cash for a parcel just under 20,000 square feet in River Oaks.

Large close-in lots, the trader said, are in short supply and should appreciate. He's renting the house on the property but eventually plans to tear it down and rebuild.

'A little more stable'

"Relative to other investments I could make, it seemed a little more stable," said the trader, who didn't want his name used for fear of drawing attention at work. "If I buy a piece of property and the value goes down, at least I'm enjoying it. If I buy a piece of paper, a stock or some other financial instrument and it depreciates, I've just lost money."

Land values on the fringes of these upscale areas are mounting as well.

'Breaking barriers'

In Afton Oaks, "they're breaking barriers that all the builders and all the people who live there never thought would get broken," Daugherty agent Neath said.

Square-foot prices in the Inner Loop neighborhood south of Westheimer were up just 3.3 percent last year, but that's likely to rise as more new homes are built and sold.

"Once you build out the tear-downs, you'll have a nice, stable neighborhood," Neath said.

Million-dollar properties also are no longer reserved for the move-up buyer.

In his 15 years in the mortgage business, David Zugheri had never seen a first-time home buyer spend $1 million on a house in the Houston area until last year, when he saw three — all in the energy industry.

"The oil and gas business is handsomely rewarding a lot of people," said Zugheri of First Houston Mortgage.

Still, University of Houston economist Barton Smith worries about what could happen if the energy market weakens.

When the boom ends?

"These energy booms never last forever," he said in a recent interview. "What happens when the energy boom softens and their incomes go from seven- to six- to five-digit levels? All of a sudden, that million-dollar home may be a significant burden to them."

But it's not just energy driving million-dollar sales.

Realtor Andy Weber recently sold a new $1.1 million house in the Museum District to a couple who had just adopted twins.

They were both doctors who had relocated here from New York, where they were renting.

At first, the idea of spending $1 million wasn't an option.

"They were thinking they could get lots of land for under a million," said Weber of John Daugherty, Realtors. "We went over the million mark. As we looked, that's just what it was."